David Cameron today stoked expectations of more spending cuts in next month's Budget, telling MPs the Government needs to go "further and faster" to bring down the deficit following the loss of the UK's triple-A credit rating.
Cameron's comments came after official figures showed that GDP grew by just 0.2% in 2012 - up from a previous estimate of zero growth, but below the 0.8% forecast by the Office for Budget Responsibility at the time of last year's Budget.
At Prime Minister's Questions in the Commons, Labour leader Ed Miliband described the downgrade by Moody's as a "humiliation" for Cameron and Chancellor George Osborne, who had made safeguarding the cherished AAA rating a key test of the Government's economic policy.
But Cameron retorted that it was "a reminder of the debt and the deficit problem" which the UK faces.
In his first public comment on last Friday's downgrade, the Prime Minister said: "It demonstrates we have to go further and faster on reducing the deficit."
Cameron's official spokesman played down the significance of the remark, insisting that the PM was merely restating the Chancellor's previous announcements that his austerity programme has been extended from 2015 to 2018.
"We have been clear at previous fiscal events that the period of fiscal consolidation has been extended," said the spokesman. "That's what the Prime Minister was referring to."
Several Cabinet ministers are already reported to be resisting further cuts to their departmental spending, as Mr Osborne tries to find £10 billion of savings for 2015/16 without tearing up the protection which has so far been granted to the budgets for the NHS, schools, overseas aid and pensioner benefits.
According to analysis by the Institute for Fiscal Studies for The Times, the communities and local government budget could be cut by a further 7.2%, transport, energy and culture by 4% each and justice, defence and the Home Office by up to 3.5%.
Moody's decision to downgrade the UK by one notch to AA1 has heaped pressure on the Chancellor over his economic policy, though the markets have responded with calm to the setback, with the FTSE 100 trading close to its five-year high earlier this week.
Today, Miliband said the loss of AAA status meant Cameron had failed the economic test he had set himself.
The Tory manifesto in 2010 said safeguarding Britain's credit rating was the first of Mr Cameron's "benchmarks for Britain against which the British people can judge the economic success or failure of the next government", said the Labour leader.
And he added: "It's not just our credit rating that's been downgraded, we have a downgraded Government, a downgraded Chancellor and a downgraded Prime Minister."
But the Prime Minister responded: "The decision of the ratings agency is a reminder of the debt and the deficit problem that this country faces and, frankly, it is a warning to anyone who thinks we can walk away from it.
"It is absolutely vital that we continue with the work of this Government that has cut the deficit by a quarter, that has a million extra private sector jobs and has interest rates at record low levels."
He said it was Miliband's policy "to address excessive borrowing by borrowing more", and in Oscars week accused him of convincingly playing the role of Gordon Brown with a package of "more borrowing, more spending, more debt".
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